Next to buying a new home, buying a car can sometimes be one of the bigger purchases you make. To keep your cost down and get the best deal on a car loan, here are a few tips:
Credit Care is a Must – Just like when you apply for a mortgage on a home, the most powerful factor affecting the interest rate you will pay is usually your credit score. The higher the credit score, the lower the interest rate. The lower the credit score, the higher your interest rate may soar. If your only concern is how much your car payment will be, the difference in an interest rate is how much that will be added to what you originally purchase a vehicle for. What that means is, when you go to sell the car, most people will only pay the “blue book” value or less. If you have a high interest loan that you have been paying for a while, you may owe way more than what you can sell the car for.
Check Out ALL Financing Options – A few days or weeks before you decide to purchase a car, approach other lenders (banks, credit unions or online auto financing companies) for NON BINDING pre-approval on a loan. You may get a better rate than what you are offered at the dealership.
Keep the Loan SHORT – Even if stretching out your loan will make your monthly payment smaller, it’s best to keep it short (no longer than 5 years or 60 months) for a new car. Not only will these loans usually have lower interest rates, you will also have less time for that interest to accrue and it can save you a bunch in interest costs. If you can’t make a payment with that time limit on a loan, it may be better for you to look for a lower priced vehicle in general.
Dealer Deals – If you have done your homework and have options for loans outside of the dealership, now is the time to see what offers the dealership can give you. You have more negotiating power when you have other options. Also, look for different promotions and sales they may have to boost their sales. The only catch with a lot of dealership deals in general is you need to have excellent credit to qualify.
Keep the Loan SAFE – Another reason to be careful when you borrow money to buy a car is, different loans have different terms on what happens if you miss a payment. In a lot of cases, you car CAN be repossessed if you don’t pay. Some loans may have a few months before repossession will occur, others it might be if you miss just one month. You need to know the details of your loan just in case something might happen.
I hope these tips help keep you sharp when you are ready to get a loan to purchase a new car. However, cash is also always a great option, too!–Jen Lush